Vendor Advocacy. What is it and how does it work?

Vendor Advocacy is a relatively new Real Estate service in Australia. When a home seller uses an ethical vendor advocate, it usually means the right real estate agent is appointed resulting in a higher selling price and a stress free process for the vendor.

Unfortunately, there are some high profile Vendor Advocacy businesses out there that use scare tactics not unlike some of the selling agents they purport to protect the vendors from. These high profile Vendor Advocacy businesses even claim that they do not cost any more than selling directly through a local real estate agent, yet some vendors have paid bonuses which were higher than the base commissions. Are these advocates really looking after the vendors’ best interest, or their own hip pockets?

So how do some of these high profile advocates work and what is it that the unsuspecting and naive home seller should be looking out for?

Firstly, the high profile Vendor Advocacy businesses inform the home seller that most agents are unethical, they overprice their homes and then offer to charge a cheap commission. The high profile Vendor advocacy businesses claim that most agents are happy to work with them – and the ones that aren’t have something to hide because they do not want to be overseen by an advocate. This would be quite amusing if it wasn’t so serious. The home seller is entrusting their most valuable asset with a real estate agent who calls himself a ‘Vendor Advocate’ to appoint and oversee another real estate agent to sell their home. Who gave the high profile Vendor Advocacy businesses the ‘tick of approval’ to be the unofficial watch dogs over all other real estate agents. If you guessed no-one, then you guessed  right. It is a marketing ploy that has unsuspecting vendors believe that the high profile Vendor Advocacy business is somehow ‘more ethical’ than the real estate agent. What needs to be pointed out is that there are countless agents who refuse to work with some high profile Vendor Advocacy businesses, not because they don’t want to be overseen by a Vendor Advocate, but because they don’t believe the Vendor Advocate offers any real value to the home seller. Then, when the property is sold, the Vendor Advocacy business takes half the commission for very little work. If there are 6 or 7 agents in your suburb and half refuse to work with a high profile Vendor Advocacy business, then how does the home seller really know they are getting advised to chose the best local agent? The 2 or 3  best local agents might refuse to work with the Vendor Advocacy business and so you end up with the 4th or 5th best. To test this out, when you are ready to sell, don’t call the high profile Vendor Advocacy businesses first (as they would like you to do), call the local agents and ask them if they would be happy to sell your home if you appoint a high profile Vendor Advocacy business to oversee the whole process.

Secondly, it is extremely important to note that high profile Vendor Advocacy businesses claim that getting a valuation is either company policy, mandatory or highly recommended – of course the home seller has to pay for the valuation.  The high profile Vendor Advocacy businesses claim that all agents overprice their homes ‘just to get the listing’. They claim that getting a valuation is the best indicator of the ‘true’ value of a home. So basically, the  high profile Vendor Advocacy businesses are telling the home sellers that a valuer’s price is the ‘true market value’ of that property and that the local agents who sell hundreds of homes in your suburb, who deal with buyers and sellers day in and day out, have no idea about the true market value of your home. Seriously??? Do we really believe that? What some of these  high profile Vendor Advocacy businesses fail to tell you is that they have a policy that the valuer must call and speak to the advocate before they complete the valuation. To me, these leaves the door open for collusion to get the valuer to lower the value of the home, but I will leave it up to you to draw your own conclusions. Make sure you ask the high profile Vendor Advocacy businesses to show you a copy of the document that is used to instruct the valuer. An example of the difference in pricing may be where an agent believes a home’s estimated selling price is between $500,000 and $550,000 and in all probability, the valuer will come up with a value of $450,000 to $495,000 with a ‘likely selling price’ of $472,500 – because as we all know, valuations are always conservative.

Thirdly, the  high profile Vendor Advocacy businesses claim using their service doesn’t cost any more than selling directly through a local agent. However, this is far from the truth. In Victoria, the fees payable to an estate agent are negotiable. An agent may state that they would like to charge you say 2% plus GST, but let me assure you, that if they think they will miss out on the listing, they would be inclined to discount their commission to say 1.8%. The  high profile Vendor Advocacy businesses claim that agents that discount their commission are only doing it to get your listing. Lets look at a hypothetical. You have a $500,000 home and at 2% the commission would be $10,000 plus GST. If you went directly to the agent you might be able to negotiate that down to 1.8% i.e. to $9,000 plus GST. Now, along comes the  high profile Vendor Advocacy businesses and they claim that 2% is the normal commission. If the commission stays at 2%, you are immediately $1,000 worse off – and if you appoint a high profile Vendor Advocacy business, then in fact the agent has discounted his commission significantly because the high profile Vendor Advocacy businesses gets half. So the argument of agents discounting their commission just to get the listing is even more true when using a high profile Vendor Advocacy businesses. However, it gets worse still. The high profile Vendor Advocacy businesses will convince you that you should offer the real estate agent a lower base commission but also add a 10%, 20% or even 30% bonus over the valuation – under the guise of making the agent work harder to get you a better price and by doing so, the agent gets a piece of that bonus. So now the home seller is convinced that they should set a 20% bonus over $472,500. Typically, the house sells in the low to mid $500,000 mark (e.g. $525,000) and the commission payable is $525,000 x 1.8% = $9,450 plus a bonus of $10,500 ($525,000 – $472,500 =$52,500 x 20%). So typically, not only is the commission not discounted, it ends up being double the base commission. So again we ask the question – Are these high profile Vendor Advocacy businesses really looking after the vendors’ best interest, or their own hip pockets?

Most Vendor Advocacy businesses do not operate this way, so we strongly advise that you to ask all the right questions before signing an authority with any high profile Vendor Advocacy business. In fact, we highly recommend that you show a copy of the authority to your lawyer and see what he thinks about the whole process before you sign.